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If you’re a writer, it’s probably not profitable to cut down trees to make your own paper or even set up a small machine shop to make your own pens. That’s obvious.
Should smoothie shops make their own almond milk?
It’s clear that Starbucks should hire a team of architects, lawyers, and graphic artists on staff, but does it cost money for them to make their own cups?
Ford makes engines, but not tires.
Although the company’s theory was first written about 100 years ago by Ronald Coase, questions still remain.
Consider:
Is there a reliable way to buy inputs into goods when you have more power than your suppliers?
Does buying commodity inputs allow you to focus on what your customers value instead?
In the case of Ford, there are many companies in the tire manufacturing business, but the amount of customer-facing innovation in that industry is small. It makes little sense for Ford to make tires because they can buy up tires every year and their customers don’t really care.
Meanwhile, Apple has discovered that it has few competitors in its chip business and that customers actually care whether their laptops are faster, cooler, and cheaper. Rather than allowing chip companies to control their future, they created their own.
If you are a soloist, you only have 10 hours per day to work on your project. How many of those hours will be spent recreating what you can buy, like how Ford buys tires?
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